The future of software patents

Some recent U.S. Supreme Court decisions have provided key distinctions on patent law, yet many attorneys would like to see much clearer tests and definitions.

One key case in this matter proved to be Alice Corporation Pty. Ltd. v. CLS Bank International. In their decision, the justices confirmed that an abstract idea cannot be patented under Section 101 of Title 35 U.S.C. even if a computer is used.

The case relates to a computer system and financial transactions. CLS Bank said the patents were invalid because they were an abstract idea.

“Cognitively it's a big deal,” says Geoff Cohen, a computer scientist at Elysium Digital. “The problem is it's not clear how it's going to be applied.” He predicts there will be confusion and inconsistent rulings in district and appellate courts.

Before the Alice ruling was released, many attorneys wanted an answer to what exactly constitutes an “abstract idea.” The earlier Mayo and Bilski decisions also failed to provide a definition of an abstract idea, explains Jason Rantanen, who teaches at the University of Iowa College of Law. Writing in PatentlyO, he said the Alice ruling supports the belief that “a novel and unobvious solution to a technical problem is not an ‘abstract idea.’” This could lead to arguments over what is technological, but it does help clarify matters a bit.

The Alice decision also was seen as a partial victory for many large tech companies that need to protect their patent portfolio from lawsuits. “We thought it was good,” says Dana Rao, vice president, intellectual property and litigation at Adobe Systems. “I think they did the best they could.”

Rao adds that it is “another nail in the coffin of patent trolls with a decision that reinforces the common-sense belief that patents can't be granted for abstract ideas that have been around forever. Importantly, they made a critical distinction between those abstract patents and valid software patents that improve a technological process.”

Similarly, Horacio Gutierrez, Microsoft's deputy general counsel and corporate vice president, is on record stating that he was “pleased … the Court … confirmed … that abstract ideas are not eligible for patent protection, and distinguished the Alice patent from software inventions.”

But many harsher critics were disappointed by the decision and said the Alice ruling failed to offer a test that can be used over and over to explain which inventions can be patented or what could be considered clearly an abstract idea.

Nor did Alice make software ineligible for patent protection altogether, which was what some companies desired. But on a more basic level, it was startling that “the Supreme Court never once used the word ‘software’ in the Alice decision,” notes Gene Quinn, a patent attorney who founded IPWatchdog.com. That led him to call the opinion “intellectually bankrupt.”

“This is breathtaking given that the Supreme Court decision in Alice will render many hundreds of thousands of software patents completely useless,” Quinn predicts.

As a result of Alice, many patent writers will likely become more cautious and explicit, Cohen says. “It's a little bit more work for the people who draft the patents,” he adds.

In considering the Alice decision, Kevin Flynn, a North Carolina IP lawyer, says that the environment is not changed much by the Alice decision, and when it comes to Alice and startups, “this really didn't change anything.”

With the Alice decision, Flynn recalls the adage “the early bird that gets the worm.” This translates to “obtaining patent protections to keep others from coming in later to try to muscle you out once you have proved that the concept works and can be marketed,” he says. In addition, there is another adage related to the funding of cutting-edge companies—“the second mouse gets the cheese.”

“That translates that being out on the bleeding edge has all the risk but maybe not much payout as others can profit from your exploration,” he says.

“The Alice case is another in a line of cases that favor the second mouse over the early bird.”

But it was the Alice patent case that was the most anticipated of the Supreme Court term. The Supreme Court was looked upon to clarify matters after the U.S. Court of Appeals for the Federal Circuit earlier had failed to come up with clear definitions. In addition, the Federal Circuit is now even being questioned as the setting for resolving all major patent disputes. Diane Wood, the chief judge of the 7th U.S. Circuit Court of Appeals in Chicago, wants to see the Federal Circuit no longer having “exclusive jurisdiction” over most patent appeals.

It is noteworthy, too, that the Supreme Court in the 2013-14 term reversed five out of six appeals from the Federal Circuit. It could also be important that Randall Rader stepped down as its chief judge effective May 30 and was replaced by Sharon Prost. Rader retired from the appeals court altogether on June 30 after facing an ethical controversy.

In addition, when it comes to the U.S. Patent and Trademark Office, the Alice decision may provide it cover to undertake a massive review of the examination guidelines used internally for business method inventions, according to some sources. This potentially has a major impact because the guidelines are the rules of engagement for patent examiners, sources added. This may occur despite the fact that the Alice decision really does not mandate any key changes, critics charge.

If the courts and executive branch cannot solve many issues related to patents, Congress could pick up the slack. Yet the Senate has failed to pass new patent legislation, despite a less-drastic bill getting approved in the House. The last attempt at patent reform and limiting patent trolls was derailed at the last minute in the Senate Judiciary Committee. Much of the blame was placed on lobbying efforts by powerful trial lawyers’ groups and pharmaceutical companies.

Often, it has simply been cheaper for defendants to pay patent trolls in settlements than to fight cases. Because many software patents are broad and vague, patent trolls take advantage of these lower-quality patents in their lawsuits.

Rao also confirmed “Adobe is a victim of patent troll abuse,” as are many other companies. Writing this year in a blog post, Michael Dillon, senior vice president, general counsel and corporate secretary at Adobe, said, “In the past, Adobe, like many companies, treated claims from patent trolls as a ‘cost of doing business’ and handled it accordingly seeking to resolve the case in the most cost efficient way possible, including by paying a license fee.”

But over the past two years when faced with a patent troll case, Adobe has fought it with a variety of legal approaches.

Such moves are needed. In July, a PricewaterhouseCoopers study showed that patent trolls filed 67 percent of all new patent infringement cases in 2013, compared to 28 percent in 2009.

“That's a staggering increase and further proof of how out-of-control the patent litigation system has become,” Matt Tanielian, executive director of the Coalition for Patent Fairness, said in a statement. “The median damages awarded to patent trolls tripled that of practicing entities over the last four years.”